E-commerce and shopping habits

* This is an essay written for a computing course I was taking as part of my Summer school at Glasgow University (as a prerequisite to enrolment). It is clearly out with my usual scientific remit, more of an economics essay than anything else. I would say that it is well written and composed for what it is, although in my own words the referncing/bibliography is piss poor. I believe this is my first university essay, and this shows in several areas *

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Computers & society

E-commerce and shopping habits: has e-commerce revolutionised the way in which we shop? Is this true, will it become true and if not why not?

Since the proliferation of internet enabled personal computers in the home, E-commerce has grown to be an ever more significant retail outlet. E-commerce consists of the exchange of money for goods normally using the internet as a medium.

The system is a convoluted edifice which encompasses numerous processes including; a product catalogue and accompanying user interface which will be used to search and select products (shopping basket) for purchase, a checkout and secure payment system to allow for the transaction of money securely while also providing peace of mind for the customer, order processing and customer support systems which will deal with taking orders/payment and delivering these to the customer, an electronic data interchange (EDI) system which can deal with the interchange of information from the numerous sources involved (e.g. warehouse, distribution centre) in the process, and a host of other concerns more typical of physical retail such as marketing and brand awareness.

A study by Szymanski & Hise (Journal of Retailing, Volume 76(3) pp. 309–322, 2000 by New York University) into the causal factors involved in “e-satisfaction” (which constitutes the happiness of a customer while shopping online relating to a specific website), measure four main contributing factors which determine e-satisfaction.

There is convenience (the fact that shopping can be performed from home with minimal time investment), merchandising (referring to both the expanded catalogue of items found online as well as the wealth of specific information tied to them and the smaller time commitment of searching for these items), Site Design (involving user interface, loading times, clarity of presentation and general ease of use) as well as security of financial transactions (the consumers faith that their sensitive personal/monetary information exchanged will not be available to unscrupulous sources). Each of these factors were found to have a significant effect on e-satisfaction.

Extrapolating from this study, we can see that in this case, the factors which influence consumer satisfaction with internet retailers are actually much the same as the factors which influence satisfaction with physical retailers.

For example, a customer is obviously much more likely to make purchases at a store which is closer to them than a store further away (meaning that time invested is important, in the same way as convenience in online shopping).

Merchandising is represented by the idea that customers will normally favor the retailer which has the broadest stock and selection over smaller stores, and when information cannot be found on items in store (via nearby text with specifications or through retail staff) then the customer is less likely to make a purchase.

Site design is possibly the least justifiable parallel between e-commerce and physical commerce; however shops with organized aisles/shelves would be similar to a website free of various clutter, and would be favored by anyone shopping at said store.

Finally any outlet which does not provide sufficient security when making debit/credit card transactions, or is in any way suspicious would certainly raise red flags with a customer and would most likely cause said customer to reconsider the purchase.

Examining this study makes it clear that in several ways, the reasons which people will shop through specific websites/in specific retail stores are actually almost the same. While e-commerce may have changed how we shop, it has not necessarily changed the reasons which determine our shopping preferences.

E-commerce has brought with it, a business model which can sell digital media items, entirely free of any physical components directly to the consumer. One such example is of “Netflix” an American company which specialises in online video rental. Customers can use netflix to rent movies or other types of video, and then stream this content via the internet to their home. The benefit of such a distribution model for the consumer is that they neither have to collect nor return the physical media which their rental would typically be stored on, while the retailer benefits from reduced overheads from distribution of physical media or problems involving late fees which are both eliminated in this scenario. However one negative externality of the popularity of netflix is the decreasing profitability/interest in physical rentals and physical media as a whole. This has caused the widespread closure of retail outlets such as Blockbuster Video, which was recently de-listed from the New York stock exchange because of debts of approximately one billion US dollars.

Another company which has benefited from e-commerce in this fashion is the Valve Corporation with the “Steam” distribution model. Steam allows it’s users to purchase, download and install various PC and Mac computer games entirely through a digital distribution model using paypal. As a result of the lack of physical media, sales made through steam are much more profitable, with Valve CEO Gabe Newell being quoted as saying that“$30 gross profit can be made from a $50 game sold over Steam, much greater than the $7.50 profit made from games sold through retail”. While Steam does not release sales data, making it difficult to quantify it’s profit margins it has been estimated that Steam has a 70% market share for the digital distribution of video games, and according to articles on the company’s “steam-powered” website, it has shown a “100% year-over-year growth in unit sales“ in five consecutive years.

Considering the preceding examples of netflix and steam, it is obvious that e-commerce has in this case revolutionised the way in which we shop. Digital distribution has been growing and becoming extremely profitable due to the reduced overheads and convenience that it provides. While it is true that this type of distribution is possible only through e-commerce it has also changed our retail environment by inciting a shift away from physical media. While some evidence of the effects of such a shift have already become apparent, it is likely that in the coming years this shift will become even more widespread, with physical media being pushed aside in favor of digital distribution.

A study (Lynch, Kent, Srinivasan, May/June 2001, Journal of advertising research) measured: users trust, feeling during use and site quality relating to users and specific online retailers. While each factor was important, the most significant in determining brand loyalty was trust. This meant that those users who trusted the site most would be more likely to return to the site again. In the real world, consumers may enter or make purchases at a shop, but familiarity and trust will cause those customers to return again to make repeat visits/purchases.

Again, it can be observed that e-commerce typically does not change the psychology of the individual consumer.

In many ways, since its inception, E-commerce has already revolutionised the way that we shop although the effect on general shopping habits is negligible. While making purchases through the internet is ubiquitous in the modern day, the reasons for which we shop at certain websites and the factors which cause us to favor one over the other have changed very little in comparison to physical retailers. In these cases while e-commerce may have changed the method which we often use to make our purchases, often the items and the incentives to buy remain the same.

However one such way that e-commerce is revolutionising the way we shop is in the digital distribution marketplace. Larger profits are being made using digital distribution, and these profits are often filtering through to the consumer by way of lower prices brought about by smaller overheads of digital distribution. E-commerce may prove to have an impact in the future as it is driving the shift away from physical media in several markets, such as video games and movies and has already impacted the sales of physical media to some extent.